BusinessDay contributing editor

Here's a factual story you won't believe: people working for the man last year suffered barely any rise in inflation.

The politicians keep saying working families are doing it tough, that we're all under terrible cost-of-living pressures, but the Australian Bureau of Statistics crunched the numbers and found employees overall saw the average cost of the things they buy rise by just 1.1 per cent.

While the consumer price index showed a rise of 2.2 per cent in 2012, a separate living cost index for employees rose by only half that. Yes, utilities shot up, but interest rates fell – and interest rates aren't included in the CPI.

The ABS publishes separate living cost indices for five household types: employee, age pensioner, self-funded retiree, pensioner and beneficiary and other government transfer recipient. As the ABS explains it, the living cost indices have been designed to answer the question: By how much would after-tax money incomes need to change to allow households to purchase the same quantity of consumer goods and services that they purchased in the base period?

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The different household types tend to spend money differently. For obvious examples, most age pensioners aren't paying off a mortgage or buying nappies; walking frames and aged care costs aren't high on the agenda for the average employee.

The consumption patterns can throw up marked differences. While the living-cost index for age pensioners didn't move at all in the December quarter, it was up by 2.4 per cent over the year, outpacing the CPI. Self-funded retirees – presumably a similar age bracket – saw their living cost index jump by 0.3 per cent last quarter but it's only up 1.9 per cent over the year.

Turns out those good-time-Charlies of the self-funded set have a relatively higher proportion of expenditure than the general population on recreation and culture, which was more expensive in the December quarter.

Aged pensioners aren't as likely to be off to the opera but a higher proportion of their expenditure goes on health and food and non-alcoholic beverages, both of which fell in the latest quarter.

Which households are doing better or worse than the CPI varies from quarter to quarter, year to year, depending on what the main influences on the CPI movements. When alcohol and tobacco prices are jumping, it hits non-age welfare recipients harder as they tend to spend a higher proportion on booze and smokes.

Aged pensioners need not worry about the impact of topping the living cost indices chart last year though – aged and several other (but not all) government benefits are indexed to the higher of the consumer price index, the aged pensioner living cost index and male total average weekly earnings (MTAWE).

MTAWE outpaces the other two measures and by a considerable margin, avoiding the question of whether it's appropriate to use taxpayer's money to compensate welfare recipients for tobacco price rises.

But don't believe the ABS on this sort of stuff – the politicians after your vote and the populist media out to scare you apparently are much more convincing.

Michael Pascoe is a BusinessDay contributing editor.

25 comments

Why not compensate welfare recipients (talk about a loaded phrase) for decades of 1980s level benefits and lunatic superannuation triple taxation? Spending money on food? What were they thinking? The last couple of decades have been a nightmare come true for people on fixed incomes, retirees and low wage earners. Talk to ACOSS about how they have nothing to do any more. Tell people with jobs they aren't the working poor. Cash deposits worthless, stock market only now recovering after years (Anyone believe people can hang on to stocks for that long? If so, why do you believe that?) and the best anyone can come up with is "low inflation" long after prices have gone beyond absurd?The real question now is whether anyone has a clue, and what they'd do with it if they had one.

Commenter

Paul Wallis

Location

Sydney

Date and time

January 30, 2013, 5:06PM

Careful Michael... Its an election year and facts are dangerous!This set could particularly upset Joe you know...

Commenter

Love it

Location

Sydney

Date and time

January 30, 2013, 5:16PM

@ Love itGreat comment. I'm still smiling.

By the time Joe's breathlessly blathered on with his non-facts Tony's bound to have contradicted him with more non-facts and so the entertainment continues. Well, it would be entertaining if it wasn't so important.

Commenter

sdc

Location

Date and time

January 30, 2013, 6:57PM

Too bad this won't be published in any News Ltd. papers.

Commenter

Matt

Location

Date and time

January 30, 2013, 5:22PM

@Matt too right! Some people just can't rationalise things well enough to understand. ..A voice in the wilderness Michael Pascoe...thank you!

Commenter

BB

Date and time

January 30, 2013, 5:32PM

@ BB,I suspect most aren't interested in understanding. They've been told by MSM that this is a bad government that has increased their cost of living to the point they can hardly afford milk and bread for their children and as such, all hard-working-families are doing-it-tough!None of them want to give up that fabricated view of their world or they may need to take responsibility for why they can't balance their home budgets.I know so many who fit this description - family included sadly.

Commenter

sdc

Location

Date and time

January 30, 2013, 7:02PM

What Planet are you living on Pascoe. I am on the Aged Pension and every day we go shopping, the prices have risen. This is the type of crap that is starting to turn me off Fairfax comunications. Wake up you goos! The interest on the little nest egg we have for paying rates , insurance and maintenance does not cover 15% 0f those costs with the reduction in interest rates, but I suppose people like you on six figure salaries could not "give a toss". I hope Fairfax doesn't go broke, but if they do, you will probably finish on the dole because no decent publicatication will want you. Apart from Pensioners like me, 99% of self funded retirees are hurting badly. I don't expext this to be published because the Edfitor has to look after his own..

Commenter

dickrob

Location

Goulburn

Date and time

January 30, 2013, 5:24PM

And that comment explains why politicians appear so obsessed with things like jobs when we have a national labour shortage and budget surpluses when we have so little national debt. Must they always pander to the lowest common denominator.

Commenter

Lucas

Location

Date and time

January 30, 2013, 6:02PM

dickrob did you read michaels piece. For a pensioner who probably doesn't have a mortgage then yes the cost of living would have increased. What michael is saying is with the decreases in interest rates this has offset increases for families with a mortgage (which is a fair percentage of the population) and the cost of living for these people was negligible. He did go onto say that for pensioners prices rose 2.4% but it would have been higher if the price of food and health had not fallen in the last quarter and These cost decreases have offset some of the cost of rising utilities. I have to admit Michael is right - I was looking at my bank statements the other day and what we spent on average each week for food - aside from Xmas (which there is always a higher cost on) our food bill is consistently around $120 a week for the last 3 years. We always buy in the same shops and pretty much the same things (boring i know) so if prices were rising then we would have noticed a difference at the checkout. Where i do notice increases is in eating out and definitely on electricity, but given my mortagage payments are almost $300 lower a month than when we took the loan out 5 years ago we know we are in front.

Commenter

michelle

Location

sydney

Date and time

January 30, 2013, 6:08PM

Pascoe does not make the statistics, facts do. I agree different demographics are affected different and that has been pointed out in the article, dont blame the messenger if the facts are different to your perceptions.Many here are influenced by the dishonest retoric from the shock jocks and the Liberal opposition expect more from these clots in this election year.